Treasury, IRS Issue Proposed Regulations for FATCA Implementation


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Treasury, IRS Issue Proposed Regulations for FATCA Implementation

IR-2012-15, Feb. 8, 2012

WASHINGTON— The Treasury Department and the Internal Revenue Service today issued proposed regulations for the next major phase of implementing the Foreign Account Tax Compliance Act (FATCA).

Enacted by Congress in 2010, the law targets non-compliance by U.S.taxpayers using foreign accounts.

The regulations lay out a step-by-step process for U.S.account identification, information reporting, and withholding requirements for foreign financial institutions (FFIs), other foreign entities, andU.S.withholding agents.

“FATCA strengthens U.S.efforts to combat offshore noncompliance. In doing so, we understand it creates a significant undertaking for financial institutions.” said IRS Commissioner Doug Shulman. “Today’s proposed regulations reflect our commitment to take into account the implementation challenges of affected financial institutions while allowing for a smooth and timely roll-out of the law.”

The proposed regulations implement FATCA’s obligations in stages to minimize burdens and costs consistent with achieving the statute’s compliance objectives. The rules and implementation schedule are also adjusted to allow time for resolving local law limitations to which some FFIs may be subject.

FATCA was enacted in 2010 by Congress as part of the Hiring Incentives to Restore Employment (HIRE) Act.  FATCA requires FFIs to report to the IRS information about financial accounts held by U.S.taxpayers, or by foreign entities in whichU.S.taxpayers hold a substantial ownership interest.  In order to avoid being withheld upon under FATCA, a participating FFI will have to enter into an agreement with the IRS to:

  • Identify U.S.accounts,
  • Report certain information to the IRS regarding U.S.accounts,
  • Verify its compliance with its obligations pursuant to the agreement, and
  • Ensure that a 30-percent tax on certain payments of U.S. source income is withheld when paid to non-participating FFIs and account holders who are unwilling to provide the required information.

Registration will take place through an online system which will become available by Jan. 1, 2013.  FFIs that do not register and enter into an agreement with the IRS will be subject to withholding on certain types of payments relating toU.S.investments.

Treasury and IRS will continue to work closely with businesses and foreign governments to implement FATCA effectively. Updates and further information on FATCA can be found by visiting the FATCA page on www.irs.gov.

Written or electronic comments must be received by April 30, 2012.  Requests to speak and outlines of topics to be discussed at the public hearing scheduled for May 15, 2012, at 10 a.m. must be received by May 1, 2012.

 

Send submissions to:

CC:PA:LPD:PR (REG-121647-10)

Room 5205,

Internal Revenue Service

PO Box7604

Ben Franklin Station,Washington,D.C.20044.

Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to:  CC:PA:LPD:PR  (REG-121647-10), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, N.W., Washington, D.C., or sent electronically via the Federal eRulemaking Portal at www.regulations.gov (IRS REG-121647-10)

MY NOTE:   Below is the file containing all the new regulations.  388 pages, I think.  Happy Reading. Think I will go fishing today instead!

IRS FATCA REG-121647-10

Letter of opposition by Florida Delegation to Obama to efforts by the IRS to force US banks to report interest of non residents to the IRS.  (IE… Opposition to DATCA, as I call it…)

FL-Delegation-03-02-2011 to President

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24 thoughts on “Treasury, IRS Issue Proposed Regulations for FATCA Implementation

  1. @just me. Thank you.
    Do you think that foreign governments and foreign financial institutions are going to accept these regulations lying down? I would be willing to bet, were I a betting person, that foreign governments, such as Brazil, are not going to amend their consisutions to grant sovereignty to the US to requre its financial institutions to become agents of the IRS to collect and remit data, let alone taxes, on Brazilian residents; particularly on those who are dual US-Brazilian citizens, to the IRS.

    The final chapter in all of this has yet to be written.

  2. The United States is waging a tax war against every nation on earth. What’s amusing is that they think nobody is noticing.

  3. This statement doesn’t reassure me: “The rules and implementation schedule are also adjusted to allow time for resolving local law limitations to which some FFIs may be subject.”

    Maybe I’m paranoid, but that seems to say IRS will give FFIs time to figure out how to contravene laws which protect citizens and residents in their home country.

    Telling the IRS to butt out of other countries’ laws and rights is increasingly like telling a dog not to sniff another dog’s butt. It’s what they do. It comes natural to them. The best we can hope for is to try to keep them on a tight leash before they attack.

    I notice replies can be submitted to Ben Franklin Station. I think good old Ben is probably rolling over in his grave at his name appearing in any way on this media release.

    Ben said “A penny saved is a penny earned.” For today’s IRS, “a penny saved is ours.”

  4. It looks like the REAL aim of this is to keep money flowing out of America into offshore bank accounts.

    Despite what has been said, I’m still scared as hell that this is going to make my life more difficult in some way, even though I don’t make any money in America. Just “Identify US person” sounds creepy.

  5. After another look at the “local FFIs” deemed-compliant exemption (p. 60 and p. 299), which at first I thought was one of the big positives in this set of regulations, now I think it just offers false hope.

    Theoretically, if any bank where you live is able to become certified as a “local FFI”, then you could indeed open an account there without worrying about FATCA. But there are huge disincentives for any FFI to want to be a “local FFI” in the first place: they have to keep checking all their customers to make sure they are still residents, they cannot advertise the availability of US dollar accounts on their website, and they will not be able to expand internationally (e.g. by acquiring a bank in another country or opening up business there) because then they’d be disqualified as a “local FFI”. So I still expect that banks are going to pursue FATCA compliance by finding US persons among their customers and kicking them out.

  6. Interestingly the “agreement” they made with the five European countries(UK,FR,DE,ES,IT) says that financial institutions in those countries will not have to “kick” any one out under any circumstances.

  7. “Recalcitrant Account Holders” I guess. This whole agreement with the five European countries seems VERY last minute to try to cool things down. I would question whether the IRS even has legal authority to do it short of a treaty amendment or new legislation(I don’t think there is anything is regulations just published that allows this). Nor have any of these five countries such as Germany it appears have at all studied the domestic legal consequences of this. I also don’t think the US could get away with exempting just “five” countries they are going to have do it for everyone short of a few tin pots.

  8. Looks like Canada is holding out for now … Jim Flaherty you da man!

    Asked about Canada’s exclusion from the list of five countries, a senior government official with knowledge of the matter told Reuters that the United States “was open to exploring a similar arrangement with Canada.”

    Canadian Finance Minister Jim Flaherty said the ministry had raised “serious concerns” about FATCA with the United States.

    “Today’s announcement appears to demonstrate an interest in greater joint government collaboration to address such concerns. We will continue to work with our American counterparts towards an approach acceptable to both our countries,” he said.

    http://www.reuters.com/article/2012/02/08/us-usa-tax-treasury-fatca-idUSTRE8171G620120208

  9. As for Brazil: http://www.deloitte.com/assets/Dcom-UnitedStates/Local%20Assets/Documents/Tax/us_tax_c%C3%B3pia_da_carta_original_enviada_ao_IRS_010112.PDF
    The USA is very powerful. They are sure they will suceed it seems. I think I can understand that the IRS wants to go after US citizens, living and working in the USA, who are investing in foreign banks and hiding it. But why are they including Americans Living Abroad, Dual citizens and Green Card Holders? How are the Banks in Brazil know about dual citizens who are their clients as Brazilians? And how they will know that a Green Card holder is not a Brazilian? Is the IRS gojng after only the US citizen?… Just curious.

  10. @omghe’sstillanamerican FYI…

    I just quickly emailed the author of this Reuters story the following. I will probably also add to the comments on line.

    Lynnley

    Read your story in Reuters. So, do you think you adequately examined the issues put forth in that 388 pages of proposed FATCA regulation?

    Here is the Bigger story, I think…

    It does appear that a US version of FATCA ( DATCA, I call it.) is what is supposedly going to make this 5 country pack work. If the IRS doesn’t get the data from US banks on France, Germany, Italy, Spain and the United Kingdom citizens, there cannot be a reciprocal agreement, or so it seems to me….

    Have you reported on this? I haven’t seen a story!!

    Of course the reciprocity is somewhat different, as France, Germany, Italy, Spain and the United Kingdom citizens does NOT tax their citizens if they are residing in the US, BUT the US does tax US citizens and US Persons if they are residing in France, Germany, Italy, Spain and the United Kingdom. So how do US banks make that distinction, and do they want to do that? Can they do that? What is the cost of doing that?

    Also, what do you think is the impact US expats, dual US/Fr citizens and/or US persons who are residing in those countries? If the target of all these efforts, is to keep US homeland Rich from evading taxes, how much collateral damage is acceptable? Does anyone understand collateral damage, or in these days of drone strikes do we think our regulatory efforts are as precise as GPS directed bombs!

    I would appear that Geithner, Shulman and Company are not backing down from their DATCA style regulations to require US banks to report on all non residence interest in all US banks to the IRS, and they probably told Rep. Charles Boustany, R-La. to go pound sand when he wrote them back in September to stop doing this. It would be interesting if some reporter would find out.

    http://www.accountingtoday.com/news/Congressman-Tells-IRS-Back-off-Bank-Disclosures-60322-1.html

    So, do you think Citizens of France, Germany, Italy, Spain and UK are going to leave their money in the US now, or will it move somewhere else? What is the impact of that?

    So, for the revenue the IRS is trying to collect, what are the unintended consequences of this? Why do you guys never ever ask those questions up front?

    I don’t get it.

    Thank you.

  11. Good Letter Just Me.

    Has anyone heard from Victoria or MonaLisa on this. Their perspectives would be useful.

    I hope the reason we haven’t heard from Victoria in a few days is because she was successful in the job she applied for. Or maybe she decided it was time to take her life back. In case anyone is wondering what a life is, it’s what we all had before IRS decided to steal ours from us. They can’t stand to see anyone happy and content–expecially if it is outside US.

    So, it’s time for me to Get A Life–at least for the rest of the day.

  12. I’m currently in the US to visit my parents and entered through customs without a hitch so am obviously not on the radar. I believe that my disclosure I made late last June will go smoothly though it’s still early days, of course. It will be at least three years from Octobe15, 2011 before I’ll be in the clear from what I understand.

    As for the above, I believe that as a UK resident and dual citizen, that they have more or less agreed to fully cooperate with the US in terms of sharing information about accounts in both countries, regardless of citizenship. After all, UK residents have to declare their worldwide income to HMRC. I imagine that they will thus be more easily able to see what assets I still have in the US.

    I’d imagine that most people could still get away with quiet disclosures or filing going forward but that the IRS will never officially condone this. Unfortunately, it seems to me that the OVDI is effectively a trap for unsuspecting minnows and thus, a de facto cash generator. The IRS is using fear tactics to scare non-compliant US persons into compliance because it has limited resources; it thus has to bludgeon us into obediance, though FATCA will more easily enable them to root out the rest in the future.

    As I understand it, the 8938 will make it far easier for the IRS to enforce fines on noncompliant taxpayers because it’s under Title 26 IRS jurisdiction rather than the FBAR’s Title 31 Dept of Justice jurisdiction, whereby to enforce an FBAR fine would require a court case which proportionally costs the US government a lot of money, especially where civil fines for minnows area concerned. It’s also easier to argue that the 8938 fines are still reasonable enough to be considered constitutional and thus not a breach of the 8th Amendment.

    Unlike Petros, I am not a tax protestor so will try to maintain my citizenship and be fully compliant but may still consider renouncing if my ongoing compliance becomes too expensive and onerous to make it worth it to keep it. I also think it would be safer to renounce after all my potential statutes of limitations for potential FBAR fines have passed, which would be in about six years. Hopefully things will have been reformed by then.

    I have strong US ties and would personally feel that renouncing would upset my family in spite of their being polite to me about it. I feel that I will have to comply and face a degree of double taxation under duress but this is my slant and realize that everyone has to do what they feel is best for themselves…I don’t personally feel that my decisions are necessarily fully economic.

    I am nonetheless dismayed about all the developments but nonetheless feel I have to be pragmatic…I don’t feel that I am going to be able to change the world though respect that others here like Petros want to give it a try. 🙂 I’m not as brave as he.

    To sum up, I sensed that the former IRS tax attorney was implying that they’re mainly interested in the whales and want prospective compliance for the rest of us, along with past taxes (with interest and penalties (not fines)) paid up. So I would guess that quiet disclosures would still be OK for some people but that each person would have to seek professional advice in this instance and to perhaps even consider getting more than one opinion before stepping out into the dark.

    I am not NOT happy about any of this but am pragmatic and feel I just need to sort out the mess and then try to get on with my life with hopefully not life-changing financial damage. But we’re not in a perfect world and unfortunately, life is not always going to be fair.

  13. Additional information: It might not be so easy for the IRS to enter into these arrangements with France, Germany, Italy, Spain and UK, if Congress does not allow the IRS to force banks to provide it information on those countries citizens…

    Just heard this from some who I know is in DC lobbying on these issues:

    “When I was in DC on Monday, I learned that Senators Rubio (Florida) and Cornyn (Texas) were going to try to introduce a rider onto the transportation bill to block the ability of U.S. financial institutions to report on holdings of non-resident aliens in their banks to the IRS. We’ll se what happens.”

    So, this might be an issue to follow carefully…

  14. @Just Me

    That story sounds very true. The Republicans are putting all sorts of riders on that transporation bill. My understanding is the entire Florida and Texas congressional delegation(Democrats and Republicans oppose the so-called DATCA program). Plus the agreements with those five countries require a huge expansion in the information required to be collected under DATCA originally which I doubt many any the US even realize.

  15. I’m sorry if it seems like I’m changing the topic but had the impression that, while not happy about FATCA, that the UK was nonetheless prepared to cooperate with the US because of its close relationship. However, I don’t think the UK would go out its way to help the IRS collect draconian fines. I”m sorry but I just don’t know but the UK has always been American’s poodle

  16. Just another reference for you all.
    There is this report by Michael Cohen at Accounting today..
    http://www.accountingtoday.com/news/IRS-Treasury-Propose-New-FATCA-Regulations-61678-1.html#read

    I just posted this reply.. (their comment section does not accept HTML)

    Michael,

    Yet again, you are doing some of the most complete and comprehensive reporting on this FATCA agreement, as contrasted to Reuters, who just focuses on the 5 nation agreement..

    You can google the headline…
    U.S. enlists 5 EU nations in offshore tax crackdown

    Now, always full of questions, here is what interests me.

    This is the Bigger story, I think…

    How does the US do this without requiring similar reporting from US banks of those countries citizens who are holding accounts in America?

    It does appear that a US version of FATCA (DATCA, I call it.) is the regulatory tool that the IRS is going to use to make this 5 country partnership work. If the IRS doesn’t get the data from US banks on France, Germany, Italy, Spain and the United Kingdom citizens, there cannot be a reciprocal agreement, and the partnership fails, or so it seems to me….

    Michael, you are the only one I have seen that has reported on this. One wonders why no one else has? I am referring to your story called….

    Congressman Tells IRS to Back off on Bank Disclosures

    For readers not familiar with your excellent scoop on that new IRS regulation, and opposition in Congress, they can google the title.

    Of course the reciprocity that the US wants out of these 5 partners is somewhat unbalanced. Citizens of these countries ARE NOT taxed if they are residing in the US. However the US DOES tax its US citizens and US Persons if they are residing in the 5 countries. So how do US banks make that distinction? Will they be required to do that? Will they want to do that? Can they do that? What is the cost of doing that?

    And…. What will the reaction of the citizens of France, Germany, Italy, Spain and the United Kingdom when they find out their accounts in the US are about to be exposed to the IRS and data transmitted back to their IRS equivalent? Are they going to leave their money in the US, or will it move somewhere else? Might that mean capital flight out of American banks?

    So, what are the systemic issues that this might cause when money starts to flow away, and the US isn’t as attractive of a banking center anymore? That is a BIG issue I think.

    Also, what is the impact on US expats, dual US citizens and/or US persons who are residing in those countries??? If the target of all these tax evasion efforts, is to keep US homeland Rich from evading taxes as it is claimed, how much collateral damage is acceptable in this jihad? Does anyone at the IRS or Congress understand collateral damage, or in these days of drone strikes do we think our regulatory efforts are as precise as GPS directed bombs!

    It would appear that Geithner, Shulman and Company (including supporters in Congress like Carl Levin) are not backing down from their DATCA style regulations to require US banks to report on all non residence interest in all US banks to the IRS. Geithner probably told Rep. Charles Boustany, R-La. to go pound sand when you reported that he wrote them back in September to try and get them to stop doing this. I would be interested if you ever followed up with this Congressman, as to what response he got from Geithner?

    So, for the tax revenue the IRS is trying to collect from the cheating rich (as they are characterized), what are the unintended consequences of all this? What is the cost vs benefit analysis that shows this world wide effort at enforcement makes sense? Why do reporters, generally speaking, never ever ask those types questions up front and challenge the officials that come up with this, dare I say, crap?

    I genuinely don’t get it.

    PS..I hear via the grapevine, that Senators Rubio (Florida) and Cornyn (Texas) were going to try to introduce a rider onto the transportation bill to block the ability of U.S. financial institutions to report on holdings of non-resident aliens in their banks to the IRS. We shall see what comes of it.

  17. Just updated this Post to upload the…

    Letter of opposition by Florida Delegation to Obama to efforts by the IRS to force US banks to report interest of non residents to the IRS. (IE… Opposition to DATCA, as I call it…)

    FL-Delegation-03-02-2011 to President

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  19. I was just reading in the proposed FATCA regulations that an agenda will be prepared and can be obtained free of charge at the hearing on May 15th. I wonder if there’s a way to get a copy online or if someone was planning to attend. It might be very interesting to see who has asked for time to comment, and what the topic is. Of course each person only gets 10 minutes, so how in-depth could their comments be?

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